Report and order
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- REPORT AND ORDER
- I. INTRODUCTION
- II. BACKGROUND
- III. PRICING METHODOLOGIES FOR USE IN POLE ATTACHMENT FORMULAS
- V. FORMULA FOR DETERMINING ATTACHMENT RATES FOR POLES
Federal Communications Commission FCC 00-116 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) CS Docket No. 97-98 Amendment of Rules and Policies ) Governing Pole Attachments )
Adopted: March 29, 2000 Released: April 3, 2000 By the Commission: TABLE OF CONTENTS Paragraph No. I. INTRODUCTION 1 II. BACKGROUND 2 III. PRICING METHODOLOGIES FOR USE IN POLE ATTACHMENT FORMULAS 7 A. Background 7 B. Discussion 8
2. Gross Book versus Net Book Costs 11 IV. ARMIS UNIFORM SYSTEMS OF ACCOUNTS FOR LEC POLE OWNERS 12 V. FORMULA FOR DETERMINING ATTACHMENT RATES FOR POLES 14 A. Percentage of Usable Space Occupied 16 1. Background 16 2. Discussion 19 a. Safety Space 20 b. Minimum Ground Clearance 23 c. 30 Foot Poles 25 d. Weight and Wind Load Factors 27 B. Cost of a Bare Pole 31 1. LEC Pole Owner Formula Methodology 32 2. Electric Utility Pole Owner Formula Methodology 36 3. Total Number of Poles 43 C. Carrying Charge Rate 44 1. Administrative Element 46 2. Maintenance Element 53 a. Pole Rental Expenses Paid to Third Party 54 b. FERC Account 590 57 3. Depreciation Element 62 4. Taxes Element 71 5. Rate of Return Element 74 VI. FORMULA FOR DETERMINING ATTACHMENT RATES FOR CONDUITS 77 A. Background 77 B. Discussion 82 1. Conduit Formula Methodology 82 2. Conduit Physical Characteristics 84 3. Factors of the Conduit Formula 86 a. Percentage of Total Capacity Occupied 89 i. Total Duct or Conduit Capacity 89 ii. Occupied Capacity, the Half-Duct Presumption 92 4. Net Linear Cost of Conduit 96 a. Net Conduit Investment 97 b. System Duct Length 104 5. Carrying Charge Rate 105 a. Maintenance Element 108 i. LEC Owned Conduit 109 ii. Electric Utility Owned Conduit 111 b. Depreciation Element 113
VIII. PAPERWORK REDUCTION ACT OF 1995 ANALYSIS 156 IX. ORDERING CLAUSES 158
APPENDIX B - List of Commenters APPENDIX C - Section 224 (d) Formulas for Attachments on Poles and in Conduit I. INTRODUCTION 1. This Report and Order ("Order") addresses issues raised in Amendment of Rules and Policies Governing Pole Attachments, Notice of Proposed Rulemaking, CS Docket No. 97-98 ("Notice")1 relating to the maximum just and reasonable rates utilities2 may charge for "pole attachments"3 made to a pole, duct, conduit or right-of-way.4 Generally, the commenters5 represent the interests of one of the following three categories: (1) electric utilities;6 (2) cable operators;7 and (3) telecommunications carriers.8 In this Order, we adopt amended rules set forth in Appendix A. II. BACKGROUND 2. Section 224 of the Communications Act ("Pole Attachment Act")9 grants the Commission authority to regulate the rates, terms, and conditions10 governing pole attachments and requires that such rates, terms and conditions be just and reasonable.11 The Commission is also authorized to adopt procedures necessary to hear and to resolve complaints concerning such rates, terms, and conditions.12 In 1978, when Congress directed the Commission to regulate rates for pole attachments used for the provision of cable service, Congress established a zone of reasonableness for such rates, bounded on the lower end by incremental costs13 and on the upper end by fully allocated costs.14 See S. Rep. No. 95-580 ("1977 Senate Report").15 3. Beginning in 1978, the Commission developed a methodology to determine the maximum allowable pole attachment rate under Section 224(d)(1), (the "Cable Formula"),16 in Adoption of Rules for the Regulation of Cable Television Pole Attachments, First Report and Order, CC Docket No. 78-144 ("First Report and Order");17 Second Report and Order ("Second Report and Order");18 and Memorandum and Order ("Third Order"),19 implementing a cost methodology premised on historical or embedded costs.20 In 1987, the Commission amended and clarified the methodology for determining rates in Amendment of Rules and Policies Governing the Attachment of Cable Television Hardware to Utility Poles, CC Docket No. 86-212 ("Pole Attachment Order").21 4. The Telecommunications Act of 1996 ("1996 Act")22 amended Section 224 in several important respects. Section 703(6) of the 1996 Act added a new Subsection 224(d)(3),23 that expanded the scope of Section 224 by applying the Cable Formula to rates for pole attachments made by telecommunications carriers24 in addition to cable systems,25 until a separate methodology becomes effective for telecommunications carriers.26 Section 703(7) of the 1996 Act added new Subsections 224(e)(1‑4), which set forth a separate methodology to govern charges for pole attachments used to provide telecommunications services.27 5. In Implementation of Section 703(e) of the Telecommunications Act of 1996, CS Docket No. 97-151 ("Telecommunications Report and Order"), the Commission adopted a separate methodology for pole attachments on poles ("Telecommunications Pole Formula") and in conduits ("Telecommunications Conduit Formula") for providers of telecommunications services, including cable systems providing telecommunications services, after February 8, 2001.28 Revisions to the Cable Formula and the formula for pole attachment rates in conduit systems adopted in this Order will apply to attachments made by cable systems and, until the Telecommunications Pole Formula and the Telecommunications Conduit Formula become effective in 2001, will also apply to attachments by telecommunications carriers providing telecommunications services.29 After February 8, 2001,30 the Cable Formula for poles and the formula adopted for pole attachments in conduit systems adopted in this Order, will continue to apply to pole attachments used by a cable television system, as long as the pole attachment is not also used to provide telecommunications services.31 6. In the Notice, we sought comment to evaluate the accuracy of the Cable Formula, to evaluate and revise certain accounting rules,32 and to consider the continued applicability of certain presumptions.33 We sought comment regarding a methodology for use in determining just and reasonable pole attachment rates for conduit systems.34 We also sought comment on whether, due to the reported frequency with which accumulated depreciation balances exceed gross pole investment, a modification of the Cable Formula was necessary.35 III. PRICING METHODOLOGIES FOR USE IN POLE ATTACHMENT FORMULAS A. Background 7. When Congress enacted Section 224 in 1978, it directed the Commission to institute an expeditious program for determining just and reasonable pole attachment rates. Legislative history indicates that Congress was concerned with regulatory complexity, opting for a simple plan requiring a minimum of staff, paperwork and procedures and the avoidance of a large-scale ratemaking proceeding.36 Congress did not believe that special accounting measures or studies would be necessary because most cost and expense items attributable to utility pole, duct and conduit plant were already established and reported to various regulatory bodies, for example forms submitted to the Commission by local exchange carriers ("LECs") and to the Federal Energy Regulatory Commission ("FERC") for electric utilities.37 Congress also did not expect the Commission to re-examine the reasonableness of the cost methodologies that various regulatory agencies had sanctioned. Section 224(d)(1) describes two possible cost methodologies, incremental and fully allocated, each of which is based on the "actual" capital costs of construction and operation of the pole attachment infrastructure (poles, ducts, conduit and rights-of-way).38 Since 1978, the Commission, in interpreting this statutory language, chose an embedded cost methodology, which has been upheld by the United States Supreme Court.39 Congress expected that pole attachment rates based on incremental costs would be low, because utilities generally recover the make-ready or change-out charges directly from cable systems.40 On the other hand, fully allocated costs constitute the basis of the upper boundary of the range of just and reasonable rates.41 The Commission noted that in arriving at an appropriate rate, it is important to ensure that the attaching entity is not charged twice for the same costs, once for make-ready costs and again for the same costs if the business expense is reported in the corresponding pole or conduit capital account.42 B. Discussion 1. Modification of the Cable Formula 8. In the Notice, we solicited comment on proposed modifications to the Cable Formula and the Commission's rules relating to the maximum just and reasonable rates utilities may charge for pole attachments.43 We also sought comment on whether a modification is necessary to improve the accuracy of the Cable Formula.44 We did not specifically raise the issue of forward looking costs in the Notice in this proceeding. However, in response to the Notice, American Electric submitted comments supporting a methodology for determining a just and reasonable rate for pole attachments which employs forward looking economic cost pricing.45 Electric utility pole owners assert that such a methodology is necessary to appropriately compensate them for pole attachments made by telecommunications carriers. This position is vehemently opposed by most attaching entities. The utilities' argument is articulated in a report prepared by the Reed Consulting Group ("Reed Report"), submitted by American Electric, which argues that the Commission should take a new perspective on the Cable Formula. The Reed Report contends that the electric utilities do not possess market power; their facilities are not essential; they do not compete directly with cable or telecommunications companies; they do not enjoy unequal bargaining power; and they have no motivation to restrict access.46 Based on these arguments, the Reed Report concludes that pole attachment rates should be set through market negotiation or in the alternative, using replacement rather than historical costs in the Cable Formula. In order to reach its conclusion, the Reed Report defines the relevant market to include wireless technology and underground cable as alternatives to pole attachments. NCTA responds that Congress did not choose to repeal or modify the use of historical costs in the Cable Formula; that no certified state calculates pole rates based on reproduction costs; that there are no viable alternatives for the placement of cable and telecommunications facilities; and that the utilities do compete with cable and telecommunications providers.47 9. The Commission has employed historical costs in Cable Formula calculations since the passage of the Pole Attachment Act in 1978.48 Further, the United States Supreme Court has upheld the application of an historical cost methodology for determining pole attachment rates.49 Thus, for two decades the Cable Formula has provided a stable and certain regulatory framework, that may be applied “simply and expeditiously” requiring “a minimum of staff, paperwork and procedures consistent with fair and efficient regulation.”50 Switching to a methodology based on forward-looking economic costs would cause significant disruption and impose significant costs on attachers and this Commission. Such a change would require the Commission to develop a new formula that would necessitate a long and protracted rulemaking proceeding, and would likely involve complicated pricing investigations. In addition, such a change is likely to generate numerous complaints that the Commission would be required to resolve. Moreover, the Reed Report itself acknowledges that the use of a replacement cost methodology burdens regulators with a “long and tedious rate case process.”51 While we acknowledge that setting prices on the basis of forward-looking economic costs has significant advantages, including that it gives the appropriate signal for new entrants to invest in facilities, we believe these advantages are likely to be less pronounced in this context. We note that Congress has not expressed any intent for the Commission to deviate from the use of historical costs in the Cable Formula. We further note that the Notice did not specifically raise the possibility of shifting to a methodology based on forward-looking economic costs, and it therefore may not have been fully considered in the comments. Thus, we believe that in this particular context, after balancing all these factors, the disadvantages associated with changing to a methodology based on forward-looking economic costs would far outweigh any resulting benefits. For these reasons, we decline the electric utility pole owners’ request to shift from the historical cost methodology at this time. 10. Based on all these factors, we will continue the use of historical costs in our pole attachment rate methodology. The continued use of a clear rate formula by the Commission is essential to encourage parties to negotiate for pole attachment rates, terms and conditions. We believe the continued use of historical costs accomplishes key objectives of assuring, to both the utility and the attaching parties, just and reasonable rates; establishes accountability for prior cost recoveries; and accords with generally accepted accounting principles. 2. Gross versus Net Book Costs 11. In the Notice, we sought comment on calculating pole attachment rates using gross book instead of net book costs. Currently, the Cable Formula incorporates net figures for the calculation of maximum pole attachment rates. Cable operators generally oppose a change to the use of gross book costs, contending that a) there are no regulatory or administrative efficiencies to be gained by moving to all gross book costs; b) net book costs would still be needed for return on investment computations; and c) the technical reasons offered by utilities in support of the use of gross book costs are not valid.52 American Electric and other utility pole owners comment that the use of gross book costs are acceptable in the Cable Formula if the use of forward looking costs is not adopted by the Commission for pole attachment rates.53 As we stated in the Pole Attachment Order, our preference is to use net figures.54 The calculation of rate base items on a net basis is employed in the Cable Formula because that methodology reflects prior utility recovery of investment through depreciation, and prevents over-recovery of actual amounts invested.55 We compute the carrying charge elements for maintenance, depreciation and administrative expenses, as well as for return on investment and taxes, using net book costs. For example, the net cost of a bare pole component is derived from the gross investment in poles less accumulated depreciation and accumulated deferred income taxes. The use of gross book costs in the Cable Formula would require that the carrying charge elements for maintenance, depreciation and administrative expenses be calculated using gross book costs for both total plant investment and pole investment. Even if gross book costs were used in the Cable Formula, the rate of return and the income tax carrying charges would continue to be computed using net book costs because utility prices are generally set to allow an authorized rate of return on net book costs. The use of gross book costs on a case by case basis does not appear to be inconsistent with the legislative history of Section 224, which indicates that the Commission has significant discretion in selecting a methodology for determining just and reasonable pole attachment rates.56 In the past, if parties submitted calculations using gross book figures, we have calculated the maximum pole attachment rate using gross book costs.57 The important goal is to ensure that like figures are used, whether net or gross and the Commission has stated that if both parties to a pole attachment complaint agree, the pole attachment rates may be computed using gross book costs.58 We are not persuaded that our current preference for the use of net figures should be abandoned. Therefore, we will continue to use net figures in the Cable Formula. However, as in the past, when all parties to a complaint agree, we will allow the use of gross book costs. IV. ARMIS Uniform System of Accounts for LEC Pole Owners 12. In the Notice,59 we proposed a formal revision of the Cable Formula for LECs so that it accurately reflects our current use of data from the Commission's Automated Reporting Management Information System ("ARMIS").60 ARMIS Report 43-02 - Uniform System of Accounts ("USOA") contains the financial operating results of a LEC's telecommunications operations for every Part 32 account.61 The Cable Formula codified by the Pole Attachment Order specifies particular Part 31 accounts to be used to calculate the pole attachment rates LECs may charge cable systems.62 Previously LECs reported data collected in Part 31 accounts on an FCC Form M.63 Effective January 1, 1988, Part 31 was replaced by Part 32, which changed how LECs account for and report certain costs.64 For example, it appeared that the Part 31 accounts used in the Cable Formula included some non-administrative expenses in the administrative component of the carrying charges.65 The proposed Part 32 accounts used in the Cable Formula would not include such non-administrative expense in the administrative component. The potential for inclusion of unrelated expenses in certain accounts must be balanced with the inability to recover other minor expenses that may have a legitimate nexus to pole attachments that are included in unrelated accounts. Our policy has been that not every detail of pole attachment cost must be accounted for, nor every detail of non-pole attachment cost eliminated from every account used.66 The adoption of Part 32 would not alter our policy in that regard. 13. There was no opposition in the record, and substantial encouragement,67 to the codification of the use in the Cable Formula of Part 32 accounts reported to the ARMIS. Adoption of Part 32 accounts will facilitate public access to data on which to determine just and reasonable pole attachment rates.68 We affirm the use of Part 32 Uniform System of Accounts for LECs, as reported to ARMIS, in determining various components of the Cable Formula. These specific accounts are discussed in this Order relating to various aspects of the Cable Formula. V. FORMULA FOR DETERMINING ATTACHMENT RATES FOR POLES 14. The Commission uses the following Cable Formula in disputed cases to set rates to be charged by utilities for attachments on poles:69 
15. In the Notice, we sought comment on the continued applicability of various factors and elements within this formula.70 In Implementation of Section 703(e) of the Telecommunications Act of 1996, Notice of Proposed Rulemaking ("Telecommunications Notice"),71 we also sought comment regarding whether wind and weight load factors should be considered in the pole attachment rate and deferred discussion and decision on that issue to this rulemaking.72 A. Percentage of Total Usable Space Occupied 1. Background 16. In the Second Report and Order, consistent with Section 224(d)(2) and Congressional intent, the Commission defined total usable space as the space on the utility pole above the minimum grade level that is usable for the attachment of wires, cables, and related equipment.73 Based upon survey results, consideration of the National Electric Safety Code ("NESC"),74 and practical engineering standards used in constructing utility poles, the Commission found that "the most commonly used poles are 35 and 40 feet high, with usable spaces of 11 to 16 feet, respectively."75 In the Third Order, the Commission relied on NESC guidelines and data received in its rulemaking proceedings to affirm the presumption of an average 18 feet for minimum ground clearance, referring to Congressional findings that " . . . the typical utility pole [is] 35 feet in length [and] has 11 feet of usable space leaving a total of 24 feet for both the portion buried underground [6 feet] and the necessary ground clearance [18 feet].76 To avoid a pole by pole rate calculation, the Commission adopted rebuttable presumptions of (1) an average 37.5 foot pole height; (2) 13.5 feet of usable space; and (3) one foot as the amount of space a cable television attachment occupies.77 These presumptions serve as the premise for calculating pole attachment rates under the current formula. 17. In anticipation of the Notice, a group of electric utilities filed a white paper ("White Paper"),78 intended to facilitate the exchange of ideas among parties interested in matters related to pole and conduit attachments.79 The White Paper asserts that over time and with increased demand for pole space the average pole height has increased to 40 feet, and that the usable space presumption should be reduced from 13.5 feet to 11 feet.80 In 1984, the Commission, in an order denying a petition filed by some of the utilities now sponsoring the White Paper, Petition to Adopt Rules Concerning Usable Space on Utility Poles, FCC 84-325 ("Usable Space Order")81 rejected the same arguments for changing the usable space presumptions as they again put forward. In the Notice, we sought comment on the 37.5 foot presumptive pole height, the 13.5 foot usable space presumption, the average 18 foot minimum ground clearance, the allocation of the 40-inch safety space to usable space, the exclusion of 30 foot poles from the calculation of costs of a bare pole and whether 30 foot poles lack a sufficient amount of usable space to accommodate multiple attachments.82 2. Discussion 19. The presumptions used in the Cable Formula have been repeatedly affirmed since the enactment of the Pole Attachment Act.83 We again decline to modify the well established presumptions leading to 7.4% as the percentage of usable space occupied by a pole attachment.84 Commenters are divided on this issue, with pole owners asserting they should be entitled to higher rates85 that would result from their desired presumption changes, and attaching entities quoting Congressional intent, Commission precedent and widespread industry practice to counter the arguments.86 We are not persuaded by specific current industry data from electric utilities to change the usable space presumptions. a. Safety Space 20. A 40-inch safety space was created to minimize the likelihood of physical contact between employees working on cable television or telephone lines and the potentially lethal voltage carried by the electric lines, as well as to prevent electrical contact between such cables.87 In the Second Report and Order,88 and the Third Order,89 the Commission rejected the arguments of electric companies that the entire 40 inches of safety space should be attributable to cable television operators. In the Notice,90 we sought comment on the continued validity of the allocation of the 40-inch safety space to usable space. After consideration of the evidence in this proceeding, we decline to decrease the amount of usable space from 13.5 feet to 11 feet by reallocating the 40-inch safety space as unusable space. Removing the 40-inch safety space from usable space, under Section 224(d), would have the effect of spreading the costs of the safety space among the utility pole owner and the attaching entity.91 Directory: Bureaus -> Cable -> Orders Orders -> Before the Federal Communications Commission Washington, D Bureaus -> Federal Communications Commission da 99-2172 Before the federal communications commission Bureaus -> News news media Information 202 / 418-0500 Bureaus -> Sbc communications inc. And bellsouth corporation seek fcc consent to transfer control of, or assign, licenses to joint venture Bureaus -> News news media Information 202 / 418-0500 Bureaus -> Appendix a carriers Receiving Preliminary Extensions Until September 30, 2001 to Comply with calea section 103 Requirements Carrier Name trs number Bureaus -> I. statutory framework Orders -> Federal Communications Commission fcc 01-22 Download 2.07 Mb. Share with your friends:
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